November 1, 2013

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November 1, 2013

On September 30th, the FDIC released updated deposit data as of June 30, 2013. As many community banks are now regaining their footing after the financial crisis began in 2008, we wanted to take a look at how the deposit data has changed over the past five years within the Atlanta MSA.

Perhaps the most obvious trend seen in the deposit data relates to the decreasing number of banks and branches serving the Atlanta MSA. Overall, Atlanta is down from 167 banks and thrifts in 2008 to 104 in 2013, a 38% decrease over the past five years, and the number of branches has decreased 8% to 1,337 in 2013. Not surprisingly, much of the consolidation has occurred among the smaller banks. Although there are now 15 banks in the Atlanta MSA with $1 billion or more in deposits (up from 10 in 2008), the number of banks in the Atlanta MSA with less than $1 billion has fallen to 74, down from 122 in 2008, a decrease of almost 40% in just five years. With some industry observers believing that many community banks will need to be at least $500 million in assets in order to have enough scale to thrive in today’s regulatory environment, only five banks in the Atlanta MSA have between $500 million and $1 billion in deposits, down from eleven in 2008. The Atlanta MSA is particularly top heavy, with 13 banks controlling over 85% of the MSA’s deposits.

Although there are now fewer banks and branches in Atlanta, the number of banks with either a regional or national footprint has increased from six in 2008 (Bank of America, Wachovia, Washington Mutual, Regions, SunTrust, and BB&T) to eight in 2013 (Fifth Third and PNC are new additions, with Wells Fargo and JP Morgan Chase replacing Wachovia and Washington Mutual, respectively). These new entrants into the market have 94 offices located within the market, but, on average, each office location maintains less than $23 million in deposits each, well below the average of approximately $147 million per office location for the three largest banks in Atlanta. While there may be some inflation of these “home market” deposits depending on where the bank’s brokered deposits are counted, there is still an apparent performance gap for these branches as their deposits per office averages in the Atlanta MSA are also well below their per office averages in their home markets. For example, PNC Bank averages approximately $41 million in deposits per office in their “home” market of Pittsburgh, Pennsylvania, while averaging only $21 million in deposits per office in the Atlanta MSA.

This relatively low ratio between deposits and branch locations in the Atlanta MSA is also found among out-of-state loss-share participants operating in the Atlanta MSA. Notable out-of-state loss-share acquirers operate approximately 57 branches in the Atlanta MSA, with average deposits of approximately $40 million per office location. One loss-share acquirer, Bank of the Ozarks, currently operates 13 branches in the Atlanta MSA, averaging approximately $25 million in deposits per branch, as compared to approximately $53 million in deposits per branch in their “home” market centered in Little Rock, Arkansas. These figures are mostly consistent with the holdings of other out-of-state loss-share participants in their “home” and “loss-share” markets. Whether in response to the stiff competition for deposits in the Atlanta MSA or its business model running its course, one out-of-state acquirer of a failed Georgia bank recently agreed to sell their deposit franchise to another Atlanta-based bank.

These two forces – the need for smaller community banks to grow during a relatively flat economy and larger institutions, including some out-of-state banks, to more efficiently manage deposits – may soon combine in addition branch sales in Georgia. The deposit data indicates that the gap between large banks and smaller banks continues to grow, with “medium-sized” community banks becoming larger as a whole, now averaging nearly $1 billion in deposits, rather than closer to $500 million in deposits. With the new deposit figures reflecting continued industry consolidation in Atlanta, the number of banks with more than $1 billion in deposits will likely continue to increase, and the number of banks and the number of branches in the Atlanta MSA continue to decrease in the coming years.